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Cleveland elite invest millions in fund now under FBI scrutiny

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James C. Boland, left, and Albert Adams, are two prominent Clevelanders who lent their names to an investment fund led by Oscar Villarreal. The fund is drawing scrutiny from the FBI and a number of its investors, who have not seen a return on their money yet - or much paperwork. But some of the fund's investors, including Adams, have said the fund could still provide a healthy return. Also pictured in this 2011 photograph is Jennifer Adams.

CLEVELAND, Ohio -- More
than three dozen prominent Clevelanders – many of them titans of Northeast Ohio
business and philanthropy -- have potentially lost millions of dollars in
an investment fund, led by a young entrepreneur, which is now the subject of questions by the FBI and Securities and Exchange Commission.

Oscar
Villarreal was 24 years old in 2009 when he began schmoozing well-known civic
and corporate leaders with the promise to leverage his connections in Mexico,
according to several investors. He said these connections could lead to
untapped investment opportunities, particularly in oil-related deals with Mexico's state-run oil company.

Investors
were impressed by Villarreal, a personable guy written up in the business press
as a rising star. He is also an accomplished pianist and lived among some of his
clients in the wealthy East Side hamlet of Gates Mills. He is part of their
world, attending charitable events and joining civic organizations. In 2011, he
hosted a reception for the Cleveland International Piano Competition at his home, which
features a large pipe organ.

What investors really liked about Villarreal was his target to produce a profit of
15 percent to 25 percent a year for investors with a new fund he created
called WW Capital III. But investors interviewed by cleveland.com say they have repeatedly asked for but have
never seen an audited statement detailing where their money went.

Their
frustration was on display last Tuesday, when dozens of investors, or their
representatives, met at the Union Club, Cleveland's bastion of business
elite, to press Villarreal for answers. Several others were patched in to
the meeting via conference call. Villarreal was there with his attorney, Ned
Searby of BakerHostetler, a former federal prosecutor.

Business
and civic heavyweight Ed Crawford, CEO of Park-Holdings Corp, was among those
who demanded that Villarreal explain himself. In the end,
Crawford and others were told it will take time to get financial statements
together but the investment was sound.

More
than a half-dozen Cleveland business leaders originally lent their names to
Villarreal's WW Capital III fund. Among those who first appeared on WW Capital
III's "advisory board," according to a copy the fund's 2009 prospectus obtained
by cleveland.com, are Albert Adams, a partner at BakerHostetler; James C.
Boland, a retired partner at Ernst & Young and former president of the
Cavaliers who is chairman of JobsOhio, the state's newly created non-profit economic
development agency; Michael Clegg, the past president of Ostendorf Morris
Company; and Christopher M. Connor, chairman and chief executive of The Sherwin-Williams Co.,
who is also chairman of the Greater Cleveland Partnership.

Among
those listed in the prospectus as members of the fund's "investment advisory
committee" are Matthew W. Crawford of Park-Ohio Holdings Corp;
Michael T. Novak of Wellspring Financial Advisors; and Steven
Rosen of Resilience Capital Partners.

Sometime
after meeting Villarreal, but before joining the advisory committee, Boland, Connor and others went to Mexico with Villarreal to meet Villarreal's contacts
and see his operations, according to several investors. They returned
satisfied, and Cleveland investors started writing checks. The fund's prospectus called for a minimum investment of $250,000 per person and set a goal of raising around $20
million. Investors put in
amounts ranging from $1 million to as little as $50,000, according to several investors.

"I
did go to Mexico because I wasn't about to go on the board until I
see what the hell was going on," Boland said in an interview Wednesday.

Boland,
who invested $50,000, said Villarreal was charming and his contacts were also
impressive. He says he left the advisory board years ago and let go of his investment
because of a conflict of interest.

Other
well-known investors include A. Malachi Mixon III, chairman and chief executive
of Invacare; Jack Kahl, who previously sold the company that produced Duck
brand duct tape; BakerHostetler partner Jose Feliciano, and developer and
attorney John Carney.

Carney, who
described his investment in the firm as "very substantial," said Wednesday he
has been interviewed by the Securities and Exchange Commission, which would not
confirm for cleveland.com the existence of any inquiry.

Despite the SEC scrutiny, Carney remains
upbeat about eventually making a profit.

"The bottom line is none of the investors,
as far as what I know and believe, is going to lose money," said Carney.
"I think we have an opportunity to make a substantial return on our
investment."

Some
investors are embarrassed by their decision to invest in the fund led by Villarreal, who, according to a 2006 article in Crain's Cleveland Business, is a native of Spain and came to
Cleveland as an exchange student in 2002. Some investors chalk up their potential loss
to a bad bet. But other investors are unhappy and demanding more answers.

FBI officials have interviewed investors about the WW Capital III, as recently as
last week. One investor interviewed by the FBI told cleveland.com he was asked
if Villarreal was given permission to transfer money into his personal account.

The
FBI would not confirm the existence of any investigation.

Before last week's Union Club meeting, BakerHostetler's Adams wrote an
email to investors. He urged investors to remain patient, especially in light
of the investigation. Cleveland.com obtained a copy of his email.

Adams
wrote that BakerHostetler is representing Villarreal in the investigation but
said he was offering advice only as a fellow investor. (BakerHostetler was counsel for the fund when it was created, according to the prospectus.)

"While
BakerHostetler is representing Oscar in connection with the ongoing
investigation, because I am an investor, I am ethically precluded from
participating in his defense," he said in the email that was sent from his law
firm's account. "However, I want to assure that prior to the meeting you
understand the tremendous opportunities presented to us in the oil drilling
business and the impact the investigation could have on the value of our
investment."

Adams
did not respond to a request for comment. But his email shed some light on the
WW Capital III's investment. He wrote that the fund owns portions of a couple
of companies involved in oil drilling. These companies, Adams asserted, are in
the process of forming a joint venture with a major Texas oil concern, which is
seeking a large contract from PEMEX, Mexico's state-owned oil company.

Adams
said in the email that principals of the Texas oil concern believe that if the
joint venture wins the work, it could realize gross revenues of approximately
$180 million.

"It
is anticipated that WW Capital would indirectly own approximately 10 percent of
the combined entity. Obviously that 10 percent interest would have a tremendous
value – a value well in excess of our capital contributions," Adams wrote.

But
Adams also warned in the email that the principals of the Texas oil company are
"understandably very concerned about the investigation" and could be reluctant
to proceed if "concern continues to heighten."

Some
of the investors left the Union Club unsatisfied. Several investors told cleveland.com
that they believe a couple of other investors planned to go to Mexico this week
to try to check the progress of the deal – or at least get answers.

Villarreal,
who travels frequently to Texas and Mexico, according to Adams' email, could not be reached for comment. A
receptionist at his office said "he's out of the state." His
attorney, Searby, did not respond to a call and email.

Other
named investors did not respond to calls and emails, or
declined to comment.

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